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What Is A Secured Debt?

Surprisingly, many individuals who prepare for filing a bankruptcy don’t know the difference between a secured debt and an unsecured debt. Whether or not the filing of a bankruptcy case is the ultimate goal, knowing the distinction between the two types of debts is significantly important.

In Chapter 7 and Chapter 13 bankruptcy cases, the classification of a debt as secured or unsecured affects its treatment and the likelihood that a creditor will recover some amount of money for the debt from any distribution by the bankruptcy trustee. The classification of a debt also determines how a creditor may collect the debt before and during a bankruptcy case.

A secured debt is an obligation backed by collateral that "secures" payment of the debt. When a debt is secured, a creditor files a lien which provides certain rights and remedies upon default. Debtors are typically required to sign some type of security agreement when purchasing property for which a creditor requires security for payment. This results in the creditor placing a voluntary lien upon the subject collateral.

These debts may be consensual or involuntary. Home mortgages and auto vehicle loans are examples of secured debts that incur voluntary liens. Other examples of secured collateral include timeshares, boats, motorcycles, and large appliances. In contrast, real property taxes and mechanic's liens are involuntary or nonconsensual liens.

Once a default occurs, while recovery for most unsecured debts requires creditors to file a lawsuit, secured debtors may utilize other remedies such as foreclosure and repossession of property. Filing a bankruptcy case may counter the actions of a creditor that utilizes either of the aforementioned remedies.

If you have purchased a home or automobile and are experiencing problems repaying the debt and are approaching default, call Loan Lawyers, South Florida consumer rights and debt defense attorneys who help individuals with problems related to the payment of their debts. We will help you negotiate the settlement and resolution of any and all tax debt. Contact our office today by calling (888) FIGHT-13 (344-4813) and see how we can help.